United States v. Milwaukee Refrigerator Transit Co.

• Decision Date: 28 December 1905
• Citation: 142 F. 247
• Parties: UNITED STATES v. MILWAUKEE REFRIGERATOR TRANSIT CO. et al.
• Court: U.S. District Court — Eastern District of Wisconsin

142 F. 247

UNITED STATES v. MILWAUKEE REFRIGERATOR TRANSIT CO. et al.

United States Circuit Court, E.D. Wisconsin.

December 28, 1905

H. K Butterfield, U. S. Atty., and Charles Quarles, for the United states.

Winston Payne & Strawn, for defendants.

SANBORN District Judge.

This is a bill in equity for an injunction to prevent the payment of alleged rebates on freight, brought under Elkins Act Feb. 19 1903, c. 708, 32 Stat. 847 (U.S. Comp. St. Supp. 1905, p 599). The defense outlined in argument of the demurrers is that it appears on the face of the bill that the alleged rebates were not paid back to the shipper (the brewing company), but to the Refrigerator Transit Company, and, in substance and effect, nothing more is shown than the payment to a soliciting agent (the transit company) of a commission of an eighth or tenth of the published tariff rates, thus showing, in real effect, acts neither unlawful, immoral, nor injurious. A motion is also made on behalf of the brewing company to strike out certain allegations averring prior and disconnected illegal acts on its part, said to be material in proof, to characterize the acts of its principal officers and managers in organizing the transit company, and rebut the theory that the moneys paid by the carriers to the transit company were paid as commissions for obtaining the business and not as prohibited rebates.

The provisions of section 10 of the interstate commerce act, the act of 1889 (Act March 2, 1889, 25 Stat. 857 (U.S. Comp. St. 1901, p. 3160)), and the Elkins act, may be thus summarized: Section 10, Interstate Commerce Act.

Common carriers, and the officers of such as are corporations, receivers, agents, etc., of such corporations, are prohibited from giving rebates, preferences, and advantages, and making unjust discriminations, and are punishable by fine and imprisonment. Under this section only the agents of corporate carriers, and not the carriers themselves, were punishable. U. S. v. Mich. Cent. R. Co. (D.C.) 43 F. 26.

Act of 1889.

Agents of carriers: Any common carrier, and officers and agents of corporation carriers, who by means of false billing, classification, weighing, or other device or means, shall assist, suffer, or permit any one to obtain transportation at less than established rates, shall be guilty of a misdemeanor, punishable by fine and imprisonment.

Shippers: Any person or corporation agent shipping property, who shall knowingly, by false billing, classification, etc., or other device or means, with or without the carrier's consent or connivance, obtain carriage at less than such established rates, shall be deemed guilty of fraud, declared to be a misdemeanor, punishable by fine and imprisonment.

Bribery to obtain unjust discrimination: Any such person, officer, etc., who shall by paying money or thing of value, or by solicitation, induce a carrier to discriminate unjustly in his favor against other shippers, or aid or abet such discrimination, he shall be deemed guilty of a misdemeanor, punishable by fine and imprisonment.

Tort action: Shippers discriminated against are given action for damages against such person, officer, etc., as well as the carrier.

Corporation carriers themselves, it will be noticed, are not within the penalties of these acts; and the defense that the supposed discrimination was made not under like circumstances and conditions was always available.

Elkins Act of 1903.

Corporation carriers are made liable to the same extent as were their agents under the earlier statutes, but subject to fine only, not imprisonment. Their willful failure to publish tariffs or rates, or strictly observe them, is a misdemeanor punishable by fine. It is made unlawful and punishable for any person or corporation to offer, grant, or give, or to solicit, accept, or receive, or offer so to do, any rebate, concession, or discrimination in respect of transportation in interstate or foreign commerce by common carriers within the former statutes, whereby any such property shall, by any device whatever, be carried at less than the published tariff rate. Offenses under the earlier acts, followed by convictions after this act, are punishable only by fine. The acts or omissions of agents are deemed the acts or omissions of the carrier also. The published rate is made conclusive, and any departure therefrom punishable. Suits in equity by the commission, as well as those directed by the Attorney General, are authorized, and the provisions of the expedition act and anti-trust act are made applicable. It will be observed that this act makes the corporation carriers themselves liable, eliminates the question of like circumstances and conditions by making the published rate conclusive, and abolishes punishment by imprisonment.

In effect the bill in this case is claimed to charge the creation by a shipper of a dummy corporation as a device to cover rebates on large shipments of beer in interstate and foreign traffic. The carriers which are charged with paying the rebates are joined as defendants, and some of them have filed general demurrers for want of equity in the bill. The Pabst Brewing Company has also moved to strike out the following paragraph:

'That until the passage and promulgation of the act of Congress entitled 'An act to further regulate commerce with foreign nations and among the states,' approved February 19, 1903, said defendant Pabst Brewing Company had, through the agency of said Gustav G. Pabst and Frederick Pabst, habitually received from many of the railroads and common carriers, which so transported the beer and other articles so shipped by it from the state of Wisconsin into foreign countries and states other than Wisconsin, rebates and concessions and other discriminations.'

The bill, after stating that the Pabst Brewing Company, Milwaukee Refrigerator Transit Company, and Wisconsin Central Railway Company are Wisconsin corporations, and the other defendants foreign corporations, that the Attorney General has directed these proceedings, that the shipments originate in Milwaukee and continue in other states and countries, contains the following allegations, here given in brief outline (the figures refer to the numbered paragraphs of the bill):

(11) The transit company was, on October 7, 1903, organized, inter alia, to operate refrigerator cars on defendants' and other lines. It owns or controls 540 such cars. It was conceived, and is operated, as defendants carriers well knew, as a device to cover the receiving of rebates, concessions, and discriminations, to wit, an eighth or tenth of the published rate; whereby the traffic is carried at less than published rates. Such rebates are paid and accepted under the pretense, claim, and guise of 'commissions,' and amount to large sums to complainants unknown.

(12) The transit company was incorporated by procurement of the attorneys of the brewing company, and at its instance and request, with a capital of $150,000, having five directors, and with power to acquire and operate refrigerator cars, and contract for the supply and operation of refrigerator transportation by land and water.

(13) The Brewing company is a Wisconsin Corporation operating a large brewery, and selling and shipping beer into all the states and territories and to purchasers in foreign countries. It has a capital of $10,000,000 or 10,000 shares. Gustav Pabst and Fred Pabst are brothers, owning 2,000 shares, and with their mother and sisters over half of the stock. They vote and control a majority of the stock, and have always directed and controlled the election of directors, and their action; they have been and are its president, vice president, and general managers, and have always controlled all its sales, purchases, and shipments.

(14) (Here occurs the passage above quoted as to rebates prior to the Elkins act.) Upon the passage of that act the brewing company was no longer able to directly secure rebates, and cast about for some device to evade the statute, and the Pabsts, as such officers, and one Howe, as traffic manager, intending to contrive and operate a device for such evasion, caused the transit company to be formed. Of its 1,500 shares, 1,340 were issued to the two Pabsts, 35 shares to Fred Pabst's wife, and the balance to dummy directors, to give color to the claim that its stock was not owned by the brewing company. After investigation by the interstate commerce commission in May, 1905, Gustav Pabst transferred his stock in the transit company to Fred Pabst, and had some person elected director in his place; but such acts were colorable merely, he still retaining a large pecuniary interest in the corporation, and participating in its control.

(15) Immediately on the creation of the transit company the Pabsts, as controlling officers of the brewing company contracted with themselves as executive officers of the transit company, for a term not yet expired, to give the latter exclusive control of the shipment of all freight of the brewing company moving in interstate and foreign commerce, which it is still exercising. The contract was made to enable the transit company to route the shipment of such freight on the lines of such companies as will pay rebates, and withhold it from such as will not; and all the rebates, concessions, and discriminations charged in the bill have been exacted by threats of such diversion. Many thousand tons of said freight have been hauled by defendant carriers since the contract was made. On such shipments the brewing company pays to the carriers the full tariff rate, and the carriers pay the transit company for use of its refrigerator cars for mileage three-fourths of a cent to a cent per mile, and in addition an eighth or tenth of the sums paid them...